Ban on loan insurance sales confirmed

Banks are to be banned from selling payment protection insurance (PPI) to consumers when they take out a loan, the Competition Commission (CC) confirmed today.

This means banks and other lenders will have to wait at least seven days before offering the product to customers taking out loans.

The ban, which was first proposed by the CC last year, is designed to give consumers breathing space to decide if they need to buy a PPI policy, and the chance to shop around and compare prices and policies. 

Peter Davis, inquiry chairman and deputy chairman of CC, said: ‘We found that some consumers would actually value an opportunity to reflect on their options away from the credit point of sale’.

The CC hopes that prohibiting point of sale PPI will introduce more competition into a market where there is currently little, and therefore benefit customers in terms of lower prices, better products and more choice, Davis explained.

Davis added: ‘While the evidence does suggest that there is a potential downside to the prohibition, that some consumers will indeed suffer an inconvenience from not being able to purchase PPI at the credit point of sale, we are unanimous in our view that overall, consumers will be better off’.

The date for when the ban's implementation is not yet known, but it is expected to take another year to come into effect.

The news comes as the Financial Services Authority (FSA) and the British Bankers Association (BBA) go head to head in a dispute over how banks should deal with PPI complaints.

The FSA’s new package of PPI complaint handling measures, which are due to come into effect on 1 December, would force banks to review millions of PPI complaints from the last five years. The BBA has launched a judicial review in protest of the measures.

The FSA said banks should continue handling PPI complaints while the review is in process. Lloyds Banking Group however is reported to have disobeyed the FSA and put a number of PPI complaints on hold until the review is complete.